Corporate Governance

Corporate Governance

Introduction

The aim of corporate governance in an organization is to ensure the strategic, leadership, supervision, management, and reporting of the shareholders is done most appropriately. Generally, corporate governance is a system in which the company is controlled or directed. The regulation affirmations, among others, are practiced through corporate governance. It has an impact on the shareholder treatment as it influences the exclusive rules, conformance, or performance of an organization (Goranova, Abouk, Nystrom & Soofi, 2017). The goal of this essay is to explain how good corporate governance can improve shareholder treatment.

First and foremost, a corporation is a legal fiction that tends to necessitate what is important to a private agreement among a group of people, such as shareholders. At times, it is a real entity where the laws serving the needs of a society are guaranteed. Thus, it provides rights and interests the shareholders need as well as seeking to balance the defined interest. On the other hand, good corporate governance, according to the United Kingdom Law of Economics report, is that it is that which incorporates the taskforce of the purposeful company (Iqbal, Nawaz & Ehsan, 2019). It is a method where companies not only try to provide human betterment but also generate long term values for the stakeholders.

The United Kingdom Corporate Governance Code emphasizes why companies should further the interest of the corporate as that of the shareholders. Clarifying the purpose of the company as well as the contributions it has to the public is crucial. It is hence the responsibility of the corporate governance to improve the shareholder treatment. The shareholders ever since have provided companies with equitable capital who end up vesting in ownership of rights to the outlined shares. Most of the time, they are defined as the company owners as they are entitled to vote as well as sell their shares as described in the corporate charter. It is, however, important to remember how the shareholders’ right varies widely depending on the countries they are in particular, which could uphold the different one-share-one-vote principle.

Good corporate governance improves shareholders’ treatment in various ways. It adheres to various values such as fairness, transparency, accountability, and responsibility in an organization. Good corporate governance, other than preventing mismanagement in the company, enables the company to operate more effectively, thus improving the access in the capital, safeguarding shareholders as well as mitigating the company’s risk (Lynn S. Paine & Suraj Srinivasan, 2019). Indeed, it makes companies more transparent and accountable to groups like investors, which in the end, minimize unfairness and expropriation for the shareholders.

Primarily, better treatment of shareholders can be improved by good corporate governance in their ability to continue providing sustainable economic development. The process highly follows enhancing the company performance, which increases trust from the shareholders who tend to provide more capital.  Even with the corporate governance principle provided in the IFC Framework for the work, it emphasizes on the need to treat shareholders well.

Good corporate governance ensures that all shareholders are treated equitably. It is important to respect the shareholders’ rights as well as allowing them to exercise their rights. Generally, that is one of the ways of treating shareholders well because they will have opportunities to define and implement their rights without any restrictions. Regardless if it is a private or a public company, shareholders’ decisions should be considered by all directors. Besides, taking note that the shareholders are sufficient information regarding the company’s performance and challenges is important. This is because out of that, they can successfully have an oversight view and advise the company of how they would want the adjustment made for their benefits. Shareholders must have all the information needed. Ensuring the there is transparency and that stakeholders are receiving all financial and reporting information is critical. Through that, they are in the ability to clarify the roles or responsibilities needed in the company (Noori, Turabi & Ajdar, 2017). The stakeholders should be provided with true levels of accountability that implement transparent procedures that will add an impact to the shareholders’ investments. Besides, treating a shareholder well comes with disclosing the material matters of an organization in a timely which are clear and factual. The shareholders via that can easily make the most appropriate decision depending on the issue at hand for future benefits.

Also, other than ensuring the shareholders have the full disclosure of the reporting and financial information of a company and noting that they are treated equally, considering and balancing the shareholders’ interest is essential. This is one of the many ways of treating them well. Once the shareholders’ concerns and opinions are put into consideration, they can turn in with a driven market obligation to improve the performance of the company. In the long run, they can work uniquely with the rest of the creditors, investors’ policy marker, and the customer.

The company should always try to care and learn about the interest of the shareholders who have different opinions on how the company should be run. The Public and the Private Company board should strive to understand the interest of the shareholders as they play several roles in the company, such as providing financial banking for potential dividends. They generally finance the company, and that is not only beneficial to the company but also them. In the long run, the shareholders can be saving for retirement or even trading for shares where they can make enough profits based on the goals provided.

While good corporate governance ensures that the interest of the senior management executive, customers, financiers, and the community is met, they also ensure that the shareholders are treated well in a way they can affirm to accountability and company’s good governance. They tend to meet the expectations of the shareholders, not forgetting their ability to avoid corporate scandals that might negatively affect the nudge of the shareholders to invest due to cases of fraud or those that might permit the corporate chances of liability (Sumarno, Widjaja & Subandriah, 2016). Meeting the demands and interests of the shareholders is critical. Therefore, there is a need to input into consideration the four paradigms of good corporate governance, which include performance, people, purpose, and process. The four are critical in sustaining the corporation.

In conclusion, in the whole world, efficient corporate governance comes with transparency, accountability, and fairness, among other outcomes that make it easy for shareholders to trust the companies they are associating with in particular. The equitable and just environment is essential in running a business, and that encourages shareholders to have pre-requisite efforts toward promoting sustainable development. The Public and the private corporation should, therefore, work together in creating awareness for the need for better treatment of shareholders.

References

Goranova, M., Abouk, R., Nystrom, P. C., & Soofi, E. S. (2017). Corporate governance antecedents to shareholder activism: A zero‐inflated process. Strategic Management Journal, 38(2), 415-435.

Iqbal, S., Nawaz, A., & Ehsan, S. (2019). Financial performance and corporate governance in microfinance: Evidence from Asia. Journal of Asian Economics, 60, 1-13.

Lynn S. Paine & Suraj Srinivasan (2019): A Guide to the Big Ideas and Debate in Corporate Governance. Harvard Business Review

Noori, H., Turabi, I., & Ajdar, M. (2017). Investigating the Roles of Shareholders and External Board Directors on the Earnings Management: Evidence from Companies on the Tehran Stock Exchange. International Journal of Economic Perspectives, 11(1).

Sumarno, J., Widjaja, S., & Subandriah, S. (2016). The Impact Of Good Corporate Governance On Manufacturing Firm’s Profitability And Firm’s Value. Signifikan: Jurnal Ilmu Ekonomi, 5(2), 181-196.